Past Cases

Lewis Cosby, et al. v. KPMG, LLP

Status Past Case

Practice area Securities Litigation & Investor Protection

Court U.S. District Court, Eastern District of Tennessee

Case number 3:16-cv-00121-TAV-CCS


On July 12, 2022, Chief United States District Judge for the Eastern District of Tennessee, Thomas A. Varlan granted final approval of a $35 million settlement between KPMG and Cohen Milstein clients, a certified class of Miller Energy investors, in this securities class action. Information regarding the settlement can be found at

Plaintiffs alleged that KPMG recklessly or intentionally failed to meet its obligations as the independent auditor of Miller Energy. Specifically, Plaintiffs alleged that KPMG perpetuated a massive fraud by signing off on Miller Energy’s $480 million valuation of its Alaskan oil reserve assets, when in fact it was largely worthless. This fraud, Plaintiffs claim, caused millions of dollars in investor losses and led to Miller Energy’s bankruptcy.

On May 7, 2021, Judge Varlan granted certification of two classes of Miller Energy investors pursuing this securities class. Judge Varlan’s ruling overruled Defendant’s objections and affirmed the June 29, 2020 Report and Recommendation of class certification issued by United States Magistrate Judge for the Eastern District of Tennessee, Debra C. Poplin.

In a second ruling on the same date, Judge Varlan denied Defendant’s objections to Judge Poplin’s denial of Defendant’s attempt to disqualify Plaintiffs’ expert, and, in a third ruling, Judge Varlan denied Defendant’s third motion to dismiss the Complaint.

These rulings and this securities class action are very significant. There is an extremely high legal standard for finding auditors liable for securities fraud, making it rare for auditor cases to withstand motions to dismiss, let alone achieve class certification.

Cohen Milstein and co-counsel initially filed the case against KPMG in 2016. In August 2017, the SEC confirmed what Plaintiffs alleged; namely, that KPMG had been presented with a staggering number of red flags regarding Miller Energy’s fraud, but ignored them, resulting in the SEC levying extremely harsh sanctions against KPMG and the lead partner on the Miller Energy matter. In September 2017, Plaintiffs filed an amended complaint to take into account new facts revealed by the SEC’s investigation. In August 2018, Judge Varlan, denied in most respects Defendant’s motion to dismiss Plaintiffs’ second amended complaint.

Case Background

On December 16, 2009, Miller Energy announced its acquisition of the Alaska Assets, unproven exploratory below-ground oil and gas reserves and related above-ground infrastructure, through bankruptcy auction for the price of $2.25 million and the assumption of certain liabilities. Miller Energy asserted in its acquisition announcement that these Alaska Assets had a fair market value of $325 million—more than 100 times what it had paid a mere week before. Then, just three months later, Miller Energy claimed that these Alaska Assets had a fair market value of $480 million.

Little did investors know, however, that these numbers were pure fiction. For one, they were based on a report that explicitly stated that it should not be used to estimate fair market value. More fundamentally, however, the numbers were fiction because they were based on dramatically, and indeed, fraudulently understated, assumptions about the costs and expenses necessary to extract and market the below-ground reserves, in light of the geographically challenging environment in which they were located. All of this, however, was concealed from investors, and as a result, Miller Energy’s claim that it now had more than $480 million worth of assets on its balance sheet caused its stock price to skyrocket. By March 2010, Miller Energy’s stock price had soared by 982% from the pre-acquisition price.

On February 11, 2011, to match its increased prominence, Miller Energy replaced its small auditing firm with national powerhouse KPMG. But instead of requiring Miller Energy to come clean about its misstated valuation, KPMG recklessly or intentionally committed a series of devastating auditing failures that allowed Miller Energy to perpetuate its massive fraud for several more years. At their core, these failures consisted of KPMG turning a blind eye to a series of glaring red flags that that Miller Energy’s valuation of the Alaska Assets was wrong—including concerns raised by KPMG’s own internal valuation specialists. KPMG’s failures were enormously consequential, as they led investors to place additional unjustified confidence in the Alaska Assets’ valuation, given that that valuation was now backed by KPMG’s imprimatur. And from 2011 through 2013, Miller Energy’s stock price continued to rise.

Starting in December 2013, however, the house of cards began to collapse, as it became increasing clear that Miller Energy could not profitably produce the amount of oil implied by the Alaska Assets’ valuation. And, by December 2014, Miller Energy disclosed it was taking a $256.3 million impairment charge on that valuation. Three months later, it disclosed yet another impairment charge of $150 million. By 2015, Miller Energy’s securities had been de-listed by the NYSE, and the Company, along with its two officers and its former outside auditor, faced and SEC-enforcement action targeting the misstated valuation of the Alaska Assets. By year’s end, Miller Energy settled with the SEC, agreeing to pay a $5 million fine, and was in bankruptcy. Finally, in March 2016, the bankruptcy was approved, and all of its stock was voided. On the same day, Miller Energy finally admitted that the Alaska Assets’ valuation had been wrong from the outset—an admission that came far too late for investors.

The case name is: Lewis Cosby, et al. v. KPMG, LLP, Case No. 3:16-cv-00121-TAV-CCS, U.S. District Court, Eastern District of Tennessee, Knoxville Division.